The Seychelles is much more than a honeymoon destination of sandy beaches and clear blue waters –it has also become known as a kind of tax honeymoon destination, with various beneficial company types and tax regimes. Today we summarise some key elements and recent changes
Setting the scene:
- Corporate Tax
First things first, in the Seychelles, a company (regardless of whether tax resident or not) will only be liable to corporate tax on “Seychelles-source” income as defined, i.e. any income arising from the Seychelles. Thus a Seychelles resident company would not have to pay Seychellois tax on foreign income, sounds good!
As from 1 January 2022, the corporate tax rate in the Seychelles is 15% on the first 1 million Seychellois Rupee (“SRC”) of taxable income and 25% on income exceeding that amount.
- Withholding Taxes and Double Tax Agreements (“DTA”)
Like many other countries, the Seychelles imposes withholding taxes on certain streams of income such as dividends, interest, and royalties. The general withholding tax rate for these streams of income is 15% but this is often significantly reduced by a double taxation agreement (“DTA”). The Seychelles has a number of DTA’s in place including with SA, Mauritius and the UAE.
- Free Zones
Much like the UAE, the Seychelles also offers an “International Trade Zone”. Basically, it is geared up to benefit any exporting companies that would like to set up in the Seychelles.
- Beneficial Company Types
Various forms of companies are available in the Seychelles, including the following:
Special License Company
Special Licence Companies have been very popular in the Seychelles as they combine characteristics of a domestic and offshore company and can conduct certain business inside and outside of the Seychelles. Previously, a Special License Company was liable to 1,5% tax and was available in the Seychelles up until June 2021 whereafter the regime was changed.
Offshore companies – International Business Companies
This is definitely the most popular one! An International Business Companies (“IBC”) is essentially an offshore company in the Seychelles that pays minimal fees in the Seychelles and operates as a tax-free structure. The key characteristic of an IBC is that it is not permitted to carry out business in the Seychelles, but it can do any international operations.
Some recent changes
- Passive Income
On 6 January 2021 the BTA was amended to include an additional section dealing with passive income. Accordingly, passive income (other than income derived from intellectual property), generated outside of the Seychelles would not be regarded as Seychelles sourced income (i.e. no Seychelles tax payable) provided that the resident company is a “qualifying company” as defined.
In addition, as always, such a company has to have economic substance (always a critical consideration for any offshore setup). The basic substance requirements are that the filings required for the relevant governing act has to be complied with, and the company must have adequate human resources and premises in the Seychelles for holding and managing the investment assets.
Keep in mind, there are further requirements for companies that are not pure equity holding companies.
- Outsourcing Substance
The Eleventh Schedule provides for the substance to be fulfilled through outsourcing, provided that the company is able to demonstrate adequate supervision and that the functions and activities are provided in the Seychelles. Although this seems simple enough, be very careful not to cross this fine substance line – see our previous newsletter on the Coronation case.
However, on 16 September 2021 further amendments were made to the Eleventh Schedule where the Schedule was amended to apply to an entity that is a member of a multinational group (hello Transfer Pricing). So basically, if you are a multinational entity then the Eleventh Schedule now applies to you too.
FYI, a multinational group is defined to mean any group that includes two or more entities situated in different jurisdictions and a group refers to a collection of enterprises which is required to prepare consolidated financial statements.
The Takeaway
The Seychelles can in certain instances be worth considering when selecting your next offshore jurisdiction but beware that you will not jump free of substance requirements and the type of entity you choose will predetermine what kind of activities you can conduct as well as where you can conduct them.
Also, keep in mind that the Seychelles has previously appeared on the EU blacklist as a “non-cooperative jurisdiction for tax purposes.” On that note, when considering any jurisdiction keep in mind that many factors have to be considered including commercial benefits, operational procedures, legalities, reputational concerns and tax efficiency.
For more information on offshore jurisdictions, offshore investments and any substance queries contact us today.
Meet the Author
Today’s newsletter was written by Liané Bouwer, an International Tax Consultant based in Johannesburg.
Contact Liané at lbouwer@reganvanrooy.com
